----------------------------------------------------------------------- DEPARTMENT OF COMMERCE [C-557-806] Extruded Rubber Thread From Malaysia; Preliminary Results of Countervailing Duty Administrative Review AGENCY: Import Administration, International Trade Administration, Department of Commerce. ACTION: Notice of preliminary results of countervailing duty administrative review. ----------------------------------------------------------------------- SUMMARY: The Department of Commerce (the Department) is conducting an administrative review of the countervailing duty order on extruded rubber thread from Malaysia. For information on the net subsidy for each reviewed company, as well as for all non-reviewed companies, please see the Preliminary Results of Review section of this notice. If the final results remain the same as these preliminary results of administrative review, we will instruct the U.S. Customs Service to assess countervailing duties as indicated in the Preliminary Results of Review section of this notice. Interested parties are invited to comment on these preliminary results. EFFECTIVE DATE: June 11, 1996. FOR FURTHER INFORMATION CONTACT: Judy Kornfeld or Lorenza Olivas, Office of Countervailing Compliance, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: Judy Kornfeld (202) 482-3146, Lorenza Olivas (202) 482-1785 or (202) 482-2786. SUPPLEMENTARY INFORMATION: Background On August 25, 1992, the Department published in the Federal Register (57 FR 38472) the countervailing duty order on extruded rubber thread from Malaysia. On August 1, 1995, the Department published a notice of ``Opportunity to Request an Administrative Review'' (60 FR 39150) of this countervailing duty order. We received a timely request for review, and we initiated the review, covering ---- page 29535 ---- the period January 1, 1994 through December 31, 1994, on September 15, 1995 (60 FR 47930). In accordance with section 355.22 of the Department's Interim Regulations, this review covers only those producers or exporters of the subject merchandise for which a review was specifically requested (see Antidumping and Countervailing Duties: Interim Regulations; Request for Comments, 60 FR 25130 (May 11, 1995) (Interim Regulations). Accordingly, this review covers Heveafil Sdn. Bhd., Filmax Sdn. Bhd., Rubberflex Sdn. Bhd., Filati Lastex Elastofibre Sdn Bhd. (Filati), and Rubfil Sdn. Bhd. Heveafil and Filmax are affiliated companies. This review also covers 13 programs. On May 8, 1996 we extended the period for completion of the preliminary and final results pursuant to section 751(a)(3) of the Tariff Act of 1930, as amended (see, Extruded Rubber Thread From Malaysia; Extension of Time Limit for Countervailing Duty Administrative Review, 61 FR 20803). As explained in the memoranda from the Assistant Secretary for Import Administration dated November 22, 1995, and January 11, 1996 (on file in the public file of the Central Records Unit, Room B-099 of the Department of Commerce), all deadlines were further extended to take into account the partial shutdowns of the Federal Government from November 15 through November 21, 1995, and December 15, 1995, through January 6, 1996. The deadline for the final results of this review is no later than 120 days from the date on which these preliminary results are published in the Federal Register. Applicable Statute and Regulations Unless otherwise indicated, all citations to the statute are references to the provisions of the Tariff Act of 1930, as amended by the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the Act). The Department is conducting this administrative review in accordance with section 751(a) of the Act. References to the Countervailing Duties; Notice of Proposed Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989) (Proposed Regulations), are provided solely for further explanation of the Department's countervailing duty practice. Although the Department has withdrawn the particular rulemaking proceeding pursuant to which the Proposed Regulations were issued, the subject matter of these regulations is being considered in connection with an ongoing rulemaking proceeding which, among other things, is intended to conform the Department's regulations to the URAA. See Advance Notice of Proposed Rulemaking and Request for Public Comments, 60 FR 80 (January 3, 1995). Scope of the Review Imports covered by this review are shipments of extruded rubber thread from Malaysia. Extruded rubber thread is defined as vulcanized rubber thread obtained by extrusion of stable or concentrated natural latex of any cross sectional shape; measuring from 0.18 mm, which is 0.007 inch or 140 gauge, to 1.42 mm, which is 0.056 inch or 18 gauge, in diameter. Such merchandise is classifiable under item number 4007.00.00 of the Harmonized Tariff Schedule (HTS). The HTS item number is provided for convenience and Customs purposes. The written description is dispositive. Verification As provided in section 782(i) of the Act, we verified information submitted by the Government of Malaysia and Heveafil, Filmax, Rubberflex, Filati and Rubfil. We followed standard verification procedures, including meeting with government and company officials and examination of relevant accounting and financial records and other original source documents. Our verification results are outlined in the public versions of the verification reports, which are on file in the Central Records Unit (Room B-099 of the Main Commerce Building). Affiliated Parties Heveafil owns and controls Filmax and both companies produce subject merchandise. Therefore, we determine them to be affiliated companies under section 771(33) of the Act. As such, and consistent with prior reviews of this order, we have calculated only one rate for both of these companies. See Extruded Rubber Thread From Malaysia; Preliminary Results of Countervailing Duty Administrative Review, 59 FR 46392 (September 8, 1994). For further information, see Memorandum to File from Judy Kornfeld Regarding Status as Affiliated Parties dated May 22, 1996, on file in the public file of the Central Records Unit, Room B-099 of the Department of Commerce. Analysis of Programs I. Programs Conferring Subsidies A. Programs Previously Determined To Confer Subsidies 1. Export Credit Refinancing (ECR) Program The ECR program was established in order to promote: (1) Exports of manufactured goods and agricultural food products that have significant value-added and high local content, (2) greater domestic linkages in export industries, and (3) easy access to credit facilities. In order to accomplish this, the Bank Negara Malaysia, the central bank of Malaysia, provides order-based and pre- and post-shipment financing of exports through commercial banks for periods of up to 120 and 180 days, respectively, and certificate of performance (CP)-based pre-shipment financing. These loans are provided in Malaysian Ringgits. Order-based financing is provided for specific sales to specific markets. CP-based financing is a line of credit based on the previous 12 months' export performance, and cannot be tied to specific sales in specific markets. The Department determined that this program was countervailable in Final Affirmative Countervailing Duty Determination and Countervailing Duty Order; Extruded Rubber Thread From Malaysia (57 FR 38472; August 25, 1992) (Malaysian Rubber Thread Final Determination) because receipt of loans under this program was contingent upon export performance and the loans were provided at preferential interest rates. No new information or evidence of changed circumstances has been submitted in this proceeding to warrant reconsideration of this finding. Heveafil, Filmax, Rubberflex and Rubfil used pre-shipment ECR loans. Rubfil and Filati used post-shipment ECR loans. In order to determine whether these loans were provided at preferential rates during the review period, we compared the interest rate charged on these loans to a benchmark interest rate. As a benchmark for short-term loans, it is our practice to select the predominant source of short-term financing in the country as our benchmark for short-term loans. See, section 355.44(b)(3) of the Department's Proposed Regulations. In Malaysia, term loans and overdrafts offered by commercial banks are the most predominant form of short-term financing. The average interest rates for these types of financing, however, are not individually available. Therefore, we have used as our benchmark for ECR loans the average commercial bank lending rate as an estimate of these ---- page 29536 ---- predominant short-term lending rates. This rate is referred to by banks as the base lending rate (BLR). Commercial banks then add a one to two percent spread to the BLR. Thus, to determine the commercial benchmark, we used the average commercial BLR rates as published by Bank Negara, the central bank of Malaysia, plus an average spread of 1.5 percent. This is consistent with the benchmark methodology used in the last two administrative reviews. (See, e.g., Extruded Rubber Thread from Malaysia; Final Results of Countervailing Duty Administrative Review) (Final Results of 1992 Review) (60 FR 17515; April 6, 1995). Based on a comparison of the ECR rates and the benchmark rate, we find that ECR loans continue to be provided at preferential interest rates. To calculate the benefit from ECR loans on which interest was paid in 1994, we used our short-term loan methodology which has been applied consistently in previous determinations. (See, e.g., Final Affirmative Countervailing Duty Determination and Countervailing Duty Order: Butt-Weld Pipe Fittings from Thailand (55 FR 1695; January 18, 1990); and the Malaysian Rubber Thread Final Determination in this case (57 FR 38474; August 27, 1992). See also section 355.44(b)(3) of the Proposed Regulations. Because the post-shipment ECR loans were shipment-specific, we included in our calculations only those loans used to finance exports of extruded rubber thread to the United States. Because the pre-shipment loans were not shipment-specific, we included all loans on which interest was paid during the review period. To calculate the benefit, we compared the amount of interest actually paid on these loans during the review period with the amount that would have been paid at the benchmark rate of 8.98 percent. The difference between those amounts is the benefit. We then divided each company's interest savings by total exports, in the case of pre- shipment loans, because they applied to all exports, or by exports to the United States, in the case of post-shipment loans, because they applied to specific shipments of exports to the United States. On this basis, we preliminarily determine the ad valorem net subsidy from pre- shipment loans to be the following for each of the reviewed companies: ------------------------------------------------------------------------ Net subsidy Net subsidies--producer/exporter rate % ------------------------------------------------------------------------ Heveafil/Filmax............................................ 0.22 Rubberflex................................................. 0.19 Filati..................................................... 0.00 Rubfil..................................................... 0.15 ------------------------------------------------------------------------ For post-shipment loans, we preliminarily determine the ad valorem net subsidy to be the following for each of the reviewed companies: ------------------------------------------------------------------------ Net subsidy Net subsidies--producer/exporter rate % ------------------------------------------------------------------------ Heveafil/Filmax............................................ 0.00 Rubberflex................................................. 0.00 Filati..................................................... 2.59 Rubfil..................................................... 0.23 ------------------------------------------------------------------------ 2. Pioneer Status Pioneer status is a tax incentive offered to promote investment in the manufacturing, tourist, and agricultural sectors. Pioneer status was first introduced under the Pioneer Industries (Relief from Income Tax) Ordinance, 1958. This ordinance was replaced by the Investment Incentives Act (IIA) in 1968, which was subsequently replaced by the Promotion of Investment Act (PIA) of 1986. Under the IIA and the PIA, the Minister of International Trade and Industry may determine products or activities to be pioneer products or activities. Companies petition for pioneer status for products or activities that have already been approved and listed as pioneer products. Once a company receives pioneer status, its profits from the designated product or activity are exempt from the corporate income tax for a period of five years, with the possibility of an extension for an additional five years. The five-year extension was abolished for companies which applied for pioneer status on or after November 1991. Furthermore, the computation of capital allowances, which are normally deducted against the adjusted taxable income is postponed to the post- tax holiday period. Under certain conditions, companies must agree to an export commitment (i.e., they must agree to export a certain percentage of their production) to receive pioneer status. Furthermore, an export requirement may sometimes be applied to certain industries after it is determined that the domestic market is saturated and will no longer support additional producers. In the investigation of this case (see, Malaysian Rubber Thread Final Determination), we determined that pioneer status was granted to Rubberflex based on its obligation to export. Therefore, we found the program to constitute an export subsidy with respect to that company. In addition, in past administrative reviews, we reviewed the pioneer status of Filati and Filmax and found the program countervailable with respect to both of these companies because pioneer status was granted to each based on a commitment that they would export a majority of their production. (See Final Results of 1992 Review.) No new information or evidence of changed circumstances has been submitted in this proceeding to warrant reconsideration of these findings. Rubberflex, Filati and Filmax continued to hold pioneer status during the review period. However, no benefits were provided to any of these companies because either the company (1) did not file a tax return, or (2) had a tax loss during this review period. Rubfil was the only company to claim the tax exemption under pioneer status during the review period. However, in the original investigation and in prior administrative reviews of this order, Rubfil either did not use this program or did not participate in the review. Therefore, a determination as to the countervailability of this program with respect to Rubfil has not been made. During verification of this review we examined the application process which led to the granting of Rubfil's pioneer status. We verified that in its pioneer agreement, Rubfil committed to export a majority of its production. Therefore, since pioneer status was conferred upon Rubfil contingent upon its export commitment, we determine this program constitutes an export subsidy with respect to that company. To calculate the benefit, we determined the tax savings from this program during the review period and divided those savings by total exports. On this basis, we preliminarily determine the ad valorem net subsidy from this program to be the following for each of the reviewed companies: ------------------------------------------------------------------------ Net subsidy Net subsidies--producer/exporter rate % ------------------------------------------------------------------------ Heveafil/Filmax............................................ 0.00 Rubberflex................................................. 0.00 Filati..................................................... 0.00 Rubfil..................................................... 0.15 ------------------------------------------------------------------------ 3. Industrial Building Allowance Sections 63 through 66 of the Income Tax Act of 1967, as amended, allow an income tax deduction for a percentage of the value of constructed or purchased buildings used in manufacturing. In 1984, this allowance, which had been limited to manufacturing facilities, was extended to include buildings used as warehouses to store finished goods ---- page 29537 ---- ready for export or imported inputs to be incorporated into exported goods. This program includes a 10 percent initial and a 2 percent annual tax allowance (i.e., 12 percent in the first year and 2 percent thereafter). The program effectively reduces a company's taxable income, and the tax allowance can be carried forward to future tax years until fully exhausted. Rubber-based exporters are eligible for this program. We found this program countervailable in the Malaysian Rubber Thread Final Determination because use of this allowance is limited to exporters. No new information or evidence of changed circumstances has been submitted in this proceeding to warrant reconsideration of this program's countervailability. Heveafil used this program during the review period. To calculate the benefit, we determined the tax savings from this program during the review period for Heveafil and divided the savings amount by Heveafil/ Filmax's total exports, because these benefits applied to all exports. On this basis, we preliminarily determine the ad valorem net subsidy from this program to be the following for each of the reviewed companies: ------------------------------------------------------------------------ Net subsidy Net subsidies--producer/exporter rate % ------------------------------------------------------------------------ Heveafil/Filmax............................................ Less than 0.005 Rubberflex................................................. 0.00 Filati..................................................... 0.00 Rubfil..................................................... 0.00 ------------------------------------------------------------------------ 4. Double Deduction for Export Promotion Expenses Section 41 of the Promotion of Investments Act allows companies to deduct expenses related to the promotion of exports twice, once in calculating net income on the financial statement and again in calculating taxable income. We found this program countervailable in the Malaysian Rubber Thread Final Determination because its use is limited to exporters. No new information or evidence of changed circumstances has been submitted in this proceeding to warrant reconsideration of this finding. Heveafil used this program during the review period. To calculate the benefit, we calculated the tax savings from this program during the review period for this company and divided those savings by Heveafil/ Filmax's total exports, because these benefits applied to all exports. On this basis, we preliminarily determine the ad valorem net subsidy from this program to be the following for each of the reviewed companies: ------------------------------------------------------------------------ Net subsidy Net subsidies--producer/exporter rate % ------------------------------------------------------------------------ Heveafil/Filmax............................................ 0.02 Rubberflex................................................. 0.00 Filati..................................................... 0.00 Rubfil..................................................... 0.00 ------------------------------------------------------------------------ II. Programs Preliminarily Determined to be Not Used We examined the following programs and preliminarily find that the producers and/or exporters subject to review did not apply for or receive benefits under these programs during the period of review: - Investment Tax Allowance, - Abatement of a Percentage of Net Taxable Income Based on the F.O.B. Value of Export Sales, - Abatement of Five Percent of Taxable Income Due to Location in a Promoted Industrial Area, - Abatement of Taxable Income of Five Percent of Adjusted Income of Companies due to Capital Participation and Employment Policy Adherence, - Double Deduction of Export Credit Insurance Payments, - Abatement of Taxable Income of Five Percent of Adjusted Income of Companies Due to Capital Participation and Employment Policy Adherence, and - Preferential Financing for Bumiputras. Preliminary Results of Review In accordance with section 355.22(c)(4)(ii) of the Department's Interim Regulations, we have calculated an individual subsidy rate for each producer/exporter subject to this administrative review. For the period January 1, 1994 through December 31, 1994, we preliminarily determine the ad valorem net subsidies to be as follows: ------------------------------------------------------------------------ Net subsidy Net subsidies--producer/exporter Rate % ------------------------------------------------------------------------ Heveafil/Filmax............................................ 0.24 Rubberflex................................................. 0.19 Filati..................................................... 2.58 Rubfil..................................................... 0.52 ------------------------------------------------------------------------ If the final results of this review remain the same as these preliminary results, the Department intends to instruct the U.S. Customs Service to assess countervailing duties as indicated above. The Department also intends to instruct the U.S. Customs Service to collect cash deposits of estimated countervailing duties as indicated above of the f.o.b. invoice price on all shipments of the subject merchandise from reviewed companies, entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this review. As provided for in the Act, any rate less than 0.5 percent ad valorem in an administrative review is de minimis. Accordingly, for those companies no countervailing duties will be assessed or cash deposits required. The URAA replaced the general rule in favor of a country-wide rate with a general rule in favor of individual rates for investigated and reviewed companies. The procedures for countervailing duty cases are now essentially the same as those in antidumping cases, except as provided for in section 777(e)(2)(B) of the Act. Requests for administrative reviews must now specify the companies to be reviewed. See Sec. 355.22(a) of the Interim Regulations. The requested review will normally cover only those companies specifically named. Pursuant to 19 CFR 355.22(g), for all companies for which a review was not requested, duties must be assessed at the cash deposit rate, and cash deposits must continue to be collected, at the rate previously ordered. As such, the countervailing duty cash deposit rate applicable to a company can no longer change, except pursuant to a request for a review of that company. See Federal-Mogul Corporation and The Torrington Company v. United States, 822 F.Supp. 782 (CIT 1993) and Floral Trade Council v. United States, 822 F.Supp. 766 (CIT 1993) (interpreting 19 CFR 353.22(e), the antidumping regulation on automatic assessment, which is identical to 19 CFR 355.22(g)). Therefore, the cash deposit rates for all companies except those covered by this review will be unchanged by the results of this review. We will instruct Customs to continue to collect cash deposits for non-reviewed companies at the most recent company-specific or country- wide rate applicable to the company. Accordingly, the cash deposit rates that will be applied to non-reviewed companies covered by this order are those established in the most recently completed administrative proceeding. See Extruded Rubber Thread from Malaysia; Final Results of Countervailing Duty Administrative Review (60 FR 17515; April 6, 1995). These rates shall apply to all non-reviewed companies until a review of a company assigned these rates is requested. In addition, for the period January 1, 1994 through December 31, 1994, the assessment rates applicable to all non-reviewed companies covered by this order are the cash deposit rates in effect at the time of entry. ---- page 29538 ---- Public Comment Parties to the proceeding may request disclosure of the calculation methodology and interested parties may request a hearing not later than 10 days after the date of publication of this notice. Interested parties may submit written arguments in case briefs on these preliminary results within 30 days of the date of publication. Rebuttal briefs, limited to arguments raised in case briefs, may be submitted seven days after the time limit for filing the case brief. Parties who submit argument in this proceeding are requested to submit with the argument (1) a statement of the issue and (2) a brief summary of the argument. Any hearing, if requested, will be held seven days after the scheduled date for submission of rebuttal briefs. Copies of case briefs and rebuttal briefs must be served on interested parties in accordance with 19 CFR 355.38. Representatives of parties to the proceeding may request disclosure of proprietary information under administrative protective order no later than 10 days after the representative's client or employer becomes a party to the proceeding, but in no event later than the date the case briefs, under 19 CFR 355.38, are due. The Department will publish the final results of this administrative review including the results of its analysis of issues raised in any case or rebuttal brief or at a hearing. This administrative review and notice are in accordance with section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)). Dated: May 29, 1996. Paul L. Joffe, Acting Assistant Secretary for Import Administration. [FR Doc. 96-14741 Filed 6-10-96; 8:45 am] BILLING CODE 3510-DS-P
The Contents entry for this article reads as follows: International Trade Administration NOTICES Countervailing duties: Extruded rubber thread from-- Malaysia, 29534